All papers in the Holy Cross Working Paper Series should be considered draft versions subject to future revision. Comments and suggestions are welcome.

Government pension systems vary widely from country to country. Evidence from a cross-section of 110 countries indicates that structural di¤erences in public pension programs are related to reallocation of …nancial capital around the world. More specifically, we …nd that greater amounts of pension spending are associated with overall net international indebtedness and a net portfolio characterized by equity assets and debt liabilities. We present a two-country overlapping-generations model that can replicate these empirical regularities and elucidate the link between the structure of pension bene…ts and the resulting portfolio choices of economic agents. In the country with state-guaranteed pension bene…ts, workers face a lower overall riskiness of lifetime wealth. As a result, they are willing to invest in risky equity …nanced by the selling of domestic bonds. Workers in the country with no pension system, on the other hand, tend to be net savers and favor safe debt assets in their portfolios. These …ndings can help to explain the buildup of global …nancial imbalances over the last three decades as well as to analyze future changes in capital allocation patterns due to the ongoing pension system reforms in many developing and developed countries.

This paper investigates nonlinearities in the dynamics of real exchange rates. We use Monte Carlo simulations to establish the size properties of the Teräsvirta-Anderson (1992) and the Teräsvirta (1994) test, when the dynamics of the real exchange rate is in ‡uenced by an exogenous process. In addition, we examine the modi…cation proposed by Ahmad, Lo and Mykhaylova (2013; Journal of International Economics) to show that the modi…ed nonlinearity test performs much better than the original in both Monte Carlo exercises and in the actual data on 1431 bilateral real exchange rate series. Finally, we investigate the dynamics of the real exchange rate for both developed and developing countries using the modi…ed test for the recent ‡oating period. In general, the results …nds a greater incidence of nonlinear dynamics for developing country real exchange rates.

All papers in the Holy Cross Working Paper Series should be considered draft versions subject to future revision. Comments and suggestions are welcome.

We employ a two-country overlapping-generations model to explore the international dimension of household portfolio choices induced by the asymmetric provision of government-run pensions. We study the resulting patterns of risk-sharing and the corresponding welfare effects on both home and foreign agents. Introducing the defined benefits pay-as-you-go system at home increases the welfare of all other agents at the expense of the home workers and improves the degree of intergenerational risk sharing abroad. Conversely, a defined contributions system leads to welfare losses of both home cohorts accompanied by gains abroad, but does increase the extent of intergenerational risk sharing at home.